China: The True Impact Of The Chinese Telecom Ban On Government Contractors

As you probably know, we have been following very closely developments relating to Section 889 of the 2019 National Defense Authorization Act (NDAA), which prohibits executive agencies from purchasing restricted products and services from certain Chinese telecommunications companies (including Huawei and ZTE) and also from working with contractors that use such products.

Jonathan Aronie was one of the featured panelists at the well-attended General Services Administration (GSA) Section 889 industry event on November 6, 2019, during which a lively conversation ensued regarding the likely impact of the provisions on government contractors. While contractors already are dealing with Part A of the rule, which prohibits them from selling covered products and services to the government, Part B will go into effect in August 2020 and contains a much broader prohibition relating to the use of covered products and services – even if unrelated to federal business.

We prepared a set of Q&As based on our ongoing focus on 889 and our experience at the industry event that we hope you will find helpful as we continue to monitor new developments in Section 889's implementation.

Section 889 Background

Section 889 in effect prevents the sale — or use (starting in August 2020) — of products or services incorporating certain Chinese technology. The rule covers products and services that incorporate telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities) or, in the public safety context, telecommunications or surveillance equipment or services produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of those entities). But the rule is not limited to end products produced by those companies; it covers most any product that incorporates technology produced by those companies. For ease of discussion, we will speak in terms of "Huawei et al." Just keep in mind, the prohibition encompasses more companies than just Huawei.

As most of you probably are aware by now, Section 889 has two key subsections, termed (a)(1)(A) and (a)(1)(B) – fascinatingly evocative titles to be sure — which we will refer to as Part A and Part B. Part A went into effect via an Interim Rule this August. In sum (and in overly simplified fashion), it does three things:

  • It prohibits contractors from selling the Government equipment or services that incorporate Huawei et al. technology. (FAR 52.204-25)
  • It requires every offeror to represent prior to award whether or not it will provide covered equipment or services (i.e., equipment or services that incorporate Huawei et al. technology) as part of its offer and, if so, to furnish additional detail about the covered equipment or services. (FAR 52.204-24)
  • It mandates that contractors report (within one business day!) any covered equipment or services discovered during the course of contract performance. (FAR 52.204-25)

Technically, the regulations speak in terms of equipment of which Huawei et al. technology is a "substantial or essential part." But, for reasons we'll get to shortly, we don't view that limitation as particularly helpful. Neither do we view the regulatory waiver provision as particularly helpful to contractors either since (a) it's not really a waiver, but rather merely a delay in implementation and (b) we do not think a waiver will be granted in all but the rarest cases.

In contrast to Part A, which focuses on products and services sold to the Government (directly or indirectly through a prime), Part B focuses on companies that USE the covered products or services, whether or not in the context of a federal contract. The statutory language is quite broad:

[The Government shall not] "enter into a contract (or extend or renew a contract) with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system."

Notably, the prohibition includes no exception for internal uses unrelated to federal contracting. It contains no "nexus" requirement like, say, the Mandatory Disclosure Rules does, which would limit its application to uses "in connection with" a contract or subcontract. In other words, Part B is extremely far reaching. It reaches into your offices, your warehouses, and even your C Suites.

Since Part A already is in effect (via the August Interim Rule), GSA's Industry Forum focused primarily on Part B. The focus on Part B also was driven by GSA's belief that industry "hasn't quite grasped the scope of the forthcoming prohibition yet."

If you want to dive deeper into the details yourself, here are links to the statute, the interim rule, the FAR provision, the FAR representation clause, the FAR prohibition clause, the GSA deviation, and the GSAR clause.

Additionally, our previous articles on this topic can be found here, here, here, here, and here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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